The Real Crisis Facing Japan: Part 1 The Numbers
This is the first of a three part series.
If I were to ask you what is the single biggest problem facing Japan today, what would you say? If you answered the current economic meltdown, Japan's ballooning public debt, the rise of China or the threat from North Korea, you are way off. While, these are certainly extremely important issues and concerns for Japan, they pale in comparison to the real crisis it is now facing: that of demography.
Now this may seem like an hyperbole to you at first, but I am going to show you why Japan's demographic structure – and specifically its aging and shrinking population – is by far the most important issue it now faces. I will demonstrate this by looking at a number of different issues including public debt, economic growth and international reputation. Finally, I will examine what, if anything, can be done about the current situation.
However, before I continue I think it would be useful to look at a few numbers to get an idea of the magnitude of the problem. According to the Japanese government's statistics bureau, Japan's population peaked in 2006 with 127,771,000 people. Since that time it has shrunk, with the UN estimating that by the end of next year Japan's population will have fallen to just under 127 million people. This represents a loss of over 700,000 people in just 4 years.
If the current trend continues, the UN's median variant estimate is that Japan's population will fall to just over 100 million people by 2050, a loss of about 27 million people from its peak in 2006. To put that in some perspective, this is 5 million more people than currently live in the whole Kansai region of Japan. Or, to put this in a historical perspective, it means that by mid-century Japan will have roughly the same population it did in 1970.
Even more startling than this decline, though, is the decline in the size of the working age population (15-64 years of age) due to Japan's aging population. Between 1996 and 2006 (the latest figures I could find), the size of the traditional working age population declined 3.4% – foreshadowing the decline in overall population that is now occurring. Worse still, if labour force participation rates remain the same for men and women, the total labour force will shrink 20% by 2030. Thus, Japan's workforce is shrinking at an even faster rate that its population as a whole.
As you can see the numbers are large, so how did this happen? The answer is actually quite simple and has been know for a long time. After 1975, the total fertility rate for Japanese women dropped below 2.1; the replacement level needed to keep the population stable. And despite small recent increases (to 1.37 in 2008) it has stayed well below that level for the past 35 years. With little net immigration, it was inevitable for the population to start shrinking at some point.
Alright, so we have established that Japan's population is aging and shrinking, so what? In some ways, a shrinking population might be good for Japan. It could mean a smaller environmental impact or more space for individual Japanese citizens. While these benefits may indeed occur with a smaller population, I hope to show that the downsides will dwarf these potential benefits in part 2 of my article.